The Hindu Business Line : `Client loyalty matters'

EVERY Indian software company should start out by asking themselves whether their customers are loyal to the global delivery model or to the company."

Opening with this provocative statement, Frances Karamouzis, Research Director - Strategic Sourcing IT Services, Gartner, followed it up with an in-depth presentation that focussed on "Ten Disruptive Market Forces Impacting the Global Sourcing Market (and specifically India Services Sector)." eWorld caught up with her during Nasscom 2006 to check out the trends in the outsourcing marketplace and the positioning of Indian players to ride this wave.

The likes of IBM and Accenture have stepped up their presence in India at a frenzied pace. Do you think India's competitive advantage will get whittled down over time?

It is interesting that you have brought up IBM and Accenture. The concept when I started coming to India five or six years ago was that they (IBM or Accenture) could never replicate our model. But here they are, they have replicated the model. They have been able to not only establish their operations, but also keep their people fully utilised. It then brings up this question of loyalty factor. Clients are asking what else am I getting? I am getting cost and quality, but what else in terms of innovation or partnership with the companies that I am working with. Everybody describes partnerships as `strategic'. But they really are mutually aligned self-interests. Many of the Indian providers today are not sure about what they are articulating in terms of what they want to get.

Are they articulating domain depth or capacity? If they are not sure, it is hard to have what you call "strategic partnerships". That will be the key associated with the next level of success for the Indian companies. Now, Indian companies have reached the point where they have the critical mass and have a level of "wiggle room", or latitude to make choices. Before the market was making choices for them. They were basically opportunistic and met the demand. They have to be acknowledged for that. They have executed on the demand and scaled it to the level where they have created a new bar.

But from here, can they actually create a loyalty and advocacy for themselves? When a client is an advocate for you that is the ultimate demonstration that they are very much aligned. That is the challenge that is yet to be determined.

With IBM and Accenture stepping up their resources, have they shown that the "build" part of the global delivery model that Indian majors have created can be replicated?

If you rate the Tatas, Infosys, Wipro or Cognizant a 10 in terms of the actual process or expertise in delivering software, you probably today will give Accenture or IBM somewhere between 7 and 8. It is not quite where it is, but that is not the only factor that determines whether you sign a deal. What those companies (IBM or Accenture) have is domain expertise and correct work force on the offsite. The clients buying from them are saying that what India is offering is good enough. But what I am getting offsite is actually the more important factor; it is weighted more importantly in my decision-making. There is a point of diminishing returns (that comes into play in India-based offshoring), meaning the amount of money you spend on increasing incremental execution, you would not be rewarded for the market that comes in. Once you have reached the minimum threshold, every dollar that you are investing in that will generate lower returns.

Innovation has been the theme of Nasscom, 2006. How can Indian companies gain the innovation edge in the coming years?

They need to invest in reusable frameworks if they have to ensure that their fundamental underlying business model is not linked to revenue per labour hour. Most of these companies have 50,000 employees and they are $2 to $3 billion now. For them to be $10 billion, you are not going to scale it to 3,00,000 employees. You have got to be able sell IP so that you get revenues but not by increasing the workforce. If you think about it, Indian companies are in the best position to identify technology trends. They may not have the domain experts now, but why not harness technologists to identify that next new innovation and build a business model to generate revenue from IP.

Which are the exciting areas for development of IP?

Software as a services and SOA (service oriented architecture) are the two big areas.

Will more innovative deal structures come into play in the coming months?

The deal structures will increasingly be pay for performance rather than pay for effort.

Among the 10 disruptive trends for the Indian software industry, you have talked about automation as a long-term phenomenon that will play out in 2015... ?

It is a long-term phenomenon but one has to position oneself now to understand it. In other words, you will create more and more facilities that have a likelihood of getting displaced. You may end up with a problem that IBM has now. They have many data centres in the US that are worth billions of dollars. You cannot move them, right. What is to say that 10 years from now (the same will not happen in India). An IT major has announced that it is building a 20,000 person new facility in one campus in Chennai. Who is to say that 10 years from now, somebody can say, look at all these extra buildings, it just got disintermediated. So, they will end up with what we call a "boat anchor", which weighs them down, which is what is happening to IBM and EDS. They have a lot of boat anchors or data centres in the US, which cannot be easily moved elsewhere.

maverick@thehindu.co.in